Five Healthcare Stocks With Mass Movement
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Healthcare stocks are always the most volatile in the market, regardless of the market’s overall direction. On Tuesday we saw mass movement in this space from five high-profile stocks. Therefore, I am looking at this movement, determining what it means, and suggesting how to play it.
*As of 3:15 ET
Days before Phase 3 data, shares of Celsion traded higher by more than 10% following a technology development agreement for ThermoDox in China. The stock had fallen lower last week, and throughout 2013, as investors take profits from the stock’s 350% gain last year. The company is currently valued at $275 million and will be forever changed in the next few days. It’s a stock with unprecedented risk but also an incredibly high ceiling, therefore I suggest nothing more than a small investment if in fact you believe data will be positive.
I am not really sure why ACADIA traded higher on Tuesday, as there was no news besides the election of Stephen Biggar to the Board of Directors. While he is highly qualified and does add value to the board, it hardly explains the reason for such a large move. ACADIA is a perfect example of the volatility in a biotechnology stock, yet presents very little risk after a recently successful late-stage study for a Parkinson’s disease drug. With a market cap of $340 million it’s trading at about 0.50x peak sales, which is quite cheap in the biotechnology realm. Therefore, with a recent breakout over the last month, it’s very possible that ACADIA trades even higher.
Shares of the small molecule drug developer Medivation rallied to new highs on Tuesday after Johnson & Johnson reported earnings and weak sales of its drug Zytiga. Medivation is considered by many to have the most promising prostate cancer drug and the weak sales from JNJ leads many to believe that Medivation’s MDV3100 will be a success. This is a company that is seeing explosive sales growth and might be worthy of a “buy.”
While Vivus’ product launch has had many bumps in the road, investors have remained optimistic that Arena Pharmaceuticals would be more successful due to its product being safer, having more marketing flexibility, and due to the likelihood of an EU approval. However, investors have long awaited the EU approval date, which was expected in late January, and are now expressing pessimism regarding its chances of occurring. Unfortunately, the health regulator in the EU is yet to make a decision regarding Belviq’s approval and sent Arena a 180-day list of questions about the drug. Overall, it’s not a good sign, and with a market cap of nearly $2 billion, it’s clear to see that an EU approval is priced into the stock.
On Tuesday Spectrum Pharmaceuticals fell for reasons that are unexplainable, much like all of last year’s performance. The stock had just recently broke out of its four month trading range and it had looked as though it would trade considerably higher. However, this is a stock with a short ratio of 27.10 and over 55% of its float being short. As a result, it’s hard to breakout and trade higher with such a large presence of shorts. The good news is that the company’s CEO recently said that revenue for 2012 will be over $300 million, which suggests strong Q4 sales, and said that 2013 will produce growth. Therefore, with a forward P/E ratio of 8.08 and a price/sales under 3.0 I still think this is a great long-term investment, but frustrating nonetheless.
The catalysts that move a biotechnology stock are not the same as those that move other industries. It’s a space moved by speculation and expectations more so than fundamentals. However, there are numerous stocks on this list that I believe are presenting value, but don’t take my word for it, perform your own due diligence, and hopefully you can find the best investment of the bunch.
BrianNichols is long ACAD, ARNA, SPPI. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!